BLBG: Treasuries Are Little Changed as Signs of Revival Erode Demand
By Wes Goodman
Dec. 1 (Bloomberg) -- Treasuries were little changed, heading for a loss in 2009 on signs of a revival in the global economy and as the U.S. prepared to announce in two days the sizes of next week’s auctions.
The cost of protecting bonds in Asia and the Pacific from default fell, according to traders of credit-default swaps, as investors sought higher-yielding assets. Australia’s central bank raised its benchmark interest rate by a quarter percentage point for an unprecedented third straight month as evidence mounts that the nation’s economy is strengthening.
“Interest rates have to go up over the next couple of years,” said Joseph Balestrino, a fixed-income strategist at Federated Investors Inc., which oversees $392.3 billion and is based in Pittsburgh, Pennsylvania. “Overall economic growth outside the United States” will help push rates higher, he said.
The 10-year note yielded 3.20 percent as of 1:18 p.m. in Tokyo, according to BGCantor Market Data. The 3.375 percent security maturing in November 2019 traded at 101 1/2.
Ten-year rates will rise to 3.49 percent by year-end, according to a Bloomberg survey of banks and securities companies, with the most recent forecasts given the heaviest weightings. Two-year yields will climb to 1 percent from 0.65 percent today, the survey showed.
Treasuries have fallen 1.1 percent in 2009, heading for their first losing year in a decade, according to indexes compiled by Bank of America’s Merrill Lynch & Co. unit. U.S. corporate bonds returned 26 percent, the Merrill indexes show.
Credit Default Swaps
The Markit iTraxx Asia index of credit-default swaps covering 50 investment-grade borrowers outside Japan decreased 5 basis points to 114.5 basis points, according to ICAP Plc, the world’s largest inter-dealer broker.
Credit-default swaps, contracts to protect against or speculate on default, pay the buyer face value if a company fails to adhere to its debt agreements. An increase suggests deteriorating perceptions of creditworthiness and a drop shows improvement.
Record U.S. borrowings will also push yields higher, said Balestrino, in an interview yesterday in the U.S. The size of the nation’s marketable debt climbed to $7.01 trillion in September, the most ever.
The U.S. is scheduled to announce on Dec. 3 how much it plans to raise by selling three-year notes on Dec. 8, 10-year notes on Dec. 9 and 30-year bonds on Dec. 10.
Manufacturing, Retail
Reports today will show manufacturing expanded in the U.S. while German retail sales increased, based on surveys of economists by Bloomberg News. China’s manufacturing growth held at the fastest pace in 18 months in November, the Federation of Logistics and Purchasing said in Beijing.
Reserve Bank of Australia Governor Glenn Stevens increased the overnight cash rate target to 3.75 percent from 3.5 percent in Sydney.
Federal Reserve promises to hold U.S. borrowing costs at a record low are giving some investors reason to buy Treasuries. A Fed statement on Nov. 4 repeated that policy makers would hold the rate low “for an extended period.”
The U.S. economy will grow at an annual pace of 3 percent in the fourth quarter and slow to 2.65 percent in the first, according to the Bloomberg surveys.
Recovery Faltering
“The recovery is losing momentum,” said Hideo Shimomura, who helps oversee the equivalent of about $55.4 billion in Tokyo as chief fund investor at Mitsubishi UFJ Asset Management Co., part of Japan’s largest bank. “The Fed probably won’t hike until 2012. It’s good for the bond market.”
Policy makers will increase the rate to 0.5 percent in the third quarter, from the current range of between zero and 0.25 percent, the Bloomberg surveys show.
Treasuries were little changed yesterday after the United Arab Emirates’ monetary authority said it will back the state’s lenders as they face losses from Dubai World’s possible default.
Ten-year note yields last week touched the lowest level since Oct. 2 after Dubai World, a state-owned holding company, said it was seeking to delay loan payments, as investors sought the relative safety of U.S. debt.
Dubai World later said that it had began “constructive” talks with banks to restructure $26 billion of debt, including liabilities owed by units Nakheel World and Limitless World.
“Things are stabilizing,” said Tomohisa Fujiki, an interest-rate strategist BNP Paribas Securities Japan Ltd. in Tokyo. BNP’s U.S. branch is one of the 18 primary dealers required to bid at the government debt sales. The 10-year yield will rise to 3.25 percent by year-end, Fujiki said.
To contact the reporter on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net.
